December 28th, 2010 by Dissolving Dollars

Live debt free!

December 20th, 2010 by Dissolving Dollars

Yet another one of those animated videos. This one articulates the deflation case well.

December 16th, 2010 by Dissolving Dollars

Dr. Michael Hudson talks about economic parasites.

December 9th, 2010 by Dissolving Dollars

Mike Maloney gives his forecast about where things are going before they actually start to get better.

December 9th, 2010 by Dissolving Dollars

In the 60 minutes interview with Bernanke that aired Sunday, Bernanke claimed that QE2 “isn’t” money printing. Well, there is some truth to that, but there is also some lie to that. Therefore, a lot of argument has arisen as to whether QE2 is or isn’t money printing. Well, the answer is that it is and it isn’t, which means that the answer is in the eye of the objective of the person answering.

Let’s simplify this process and make an individual person the equivalent of a primary dealer (someone who can directly do business with the government and Federal Reserve and thus mediate between the two). Say you buy a $1000 savings bond from the government. When you do that, you take $1000 of existing money and give it to the government in exchange for an interest bearing IOU. As far as you are concerned, you now have $1000 and so does the government. Therefore, there is essentially $2000 in the economy now where before the bond was purchased there was only $1000. The only problem is that the bond isn’t liquid like regular money. You can’t go down to the store and buy a plasma TV with that bond. To do that you’d have to cash in the bond. Cashing in the bond would mean the government would have to cough up $1000 to pay you (plus whatever interest applied). So, once the government coughs up, we are back to only $1000 being in the economy instead of $1000 in cash plus $1000 as a bond equaling $2000. Now let’s say that instead of cashing in your bond with the government you were able to cash it in directly with the Federal Reserve. If the Federal Reserve engaged in quantitative easing and bought your bond, it would create $1000 out of thin air to buy it. That would mean there is now $3000 in existence: the government has $1000 in cash, you have $1000 in cash, and the Federal Reserve has a $1000 bond (IOU). If the Fed essentially relegates that bond to the bond graveyard and it never see the light of day again, then we can ignore that bond and just say that there is now $2000 in cash in the economy.

So technically, you could say that the Fed didn’t create any new money since all it did was exchange a bond for new cash and essentially send the bond to oblivion all under the official guise of keeping long-term interest rates down artificially. The fact is that the inflation already happened when the government went into debt. The only problem is that what people do with cash and what they do with bonds is different. That bond turned cash will now look for a new place to go. Maybe it will go to buy another bond. Maybe it will go into the stock market and help drive up stock prices. Maybe it will go into the silver market and help drive up silver prices. Who knows? Wherever it goes though, it has a more inflationary bias than it did when it was just a bond that in due time was going to be cashed out of existence.

Realistically, the government debt is never going to be paid off. Paying off the government debt would mean taking $14 trillion out of existence. That would be a big deflationary force and politicians and the indebted hate deflation, so only in delusions is that ever going to happen. Monetizing the government debt through quantitative easing means converting interest bearing IOUs that people already treat like money into interest-free money. In the short term, monetizing government debt has a definite inflationary bias in terms of asset inflation because it means money formally parked in bonds earning interest is now out looking for a new place to park itself. So, for instance, the stock market would likely go crazy to the upside for awhile as money flowed from government debt into the stock market. But in the grand scheme of things, the same amount of money would be in the system as the day the debt was monetized. And since that money wouldn’t exist as debt anymore, it would be interest-free and thus it’d free the country from the annual interest burden of being in debt $14 trillion. Sure, the delusion that the $14 trillion would eventually be paid off and thus shrink the money supply would be gone, but that is just that a delusion anyway.

I think the treasury should just come out one day and say, all our bonds are now cash and thus since they no longer bear interest you are free to spend them just like they are regular dollars. The treasury doesn’t even need to get the Federal Reserve involved to do that. With that announcement, the treasury would also need to announce that it is no longer legal for the government to go into debt. That would temper the shock of monetizing all the government’s debt. Then from there, we could implement something like the infrastructure dollars idea I discuss in Dissolving Dollars. But the government never does the extreme thing that would be the best in the long term. Instead, it does the middle of the road thing that is the most mediocre and worthless long term.

December 6th, 2010 by Dissolving Dollars

Here is another one of those dumb little computer animated videos. This one explains how if enough people buy and demand physical silver JP Morgan will crash since it has a humongous naked short position in silver.

December 2nd, 2010 by Dissolving Dollars

This is a good rant by Alex Jones that shows what a joke the recent austerity talk is. Of course, Alex Jones has a way of making the future look more bleak than it will likely be, but this is nonetheless a good rant.